Daily Archives: April 8, 2010

Wow. I take my hat off to the combined drafting skills of the US Treasury and the Chinese for this inspired bit of calculated dullness, of almost North Korean calibre. That’s an object lesson in damping down speculation about deals over an end to the renminbi peg, for one news cycle at least. In a cricketing culture, that would be called playing with a dead bat. For the US and China, it’s smothering the ember of news with the wettest of wet blankets.

What a day for debt. Long-term debt is costing the US government more than at any time in recent history. The latest auction on 30-year US Treasuries secured the highest yields since August 2007 – 4.77 per cent. Demand was slightly lower than the last auction, with $35bn bids for $13bn of debt. Record levels of government debt make rising rates a worry.

Yesterday, yields on 10-year bonds neared their Lehman’s highs, although they have not yet exceeded them. Unlike the 30-year auction, demand was extremely high for the 10-year bonds. This would normally act to dampen yields – so rates would have been higher still had there been more normal levels of demand.

Jean-Claude Trichet’s press conference today was eagerly awaited, what with the Greek crisis escalating and the European Central Bank having recently executed U-turns over International Monetary Fund involvement in a rescue package and on its collateral rules. So, how did the ECB president fare?

The answer, I think, depends on your point of view. If you think the ECB should take more of a political role as a guardian of Europe’s monetary union, there was lot there. Mr Trichet told eurozone governments to “live up to their responsibilities” (as one analyst said to me: “Can you imagine Ben Bernanke saying that to President Obama?”) and suggested how interest rates could be set on emergency loans to Greece.

But to a lot of watchers, the sessions must have appeared particularly scrappy. The ECB president admitted himself that Read more

The election spat over national insurance – an income and payroll tax – is becoming more absurd by the day. Even though I argued that the business case for avoiding the national insurance rise was so weak it had to be an April fool, Gordon Brown has done himself no favours by also suggesting British business leaders are idiots. In the usual election claim and counter-claim, there are three important principles I keep close to heart.

1. The person who writes a tax cheque is rarely the person who ultimately pays the tax. The Financial Times pays the vast majority of my income tax by withholding it from my salary, but income tax is levied on me, not the FT. The same is true for national insurance, whether it is the bit formally levied on the FT on my behalf or the bit formally levied on me. As economists would say: “the formal incidence of a tax is not the same as its effective incidence”. Here is one such economist, Ray Barrell from the National Institute for Economic and Social Research, writing a note to one of my colleagues.

The suggestion that a rise in NICs is a tax on jobs is not economically coherent, although it might look plausible. The incidence of a tax on wages does not influence its effects. Both are a direct tax on wages, but are collected differently, and have limited or no direct effects on employment. … It is the sort of thing we do in first year undergraduate courses.

For more information on tax incidence and why national insurance cannot be described as a tax on jobs Read more

It’s unclear what is making investors sell Greek debt. It may be the German stance. Yesterday, it seemed Germany wanted Greece to pay market rates for their debt, and now there are mumblings of Bundesbank opposition to the current bail-out plan.

Whatever the explanation, markets view Icelandic debt — think: Icesave woes — as a safer bet than Greek: the cost of insuring Greek sovereign 5-year debt is above its Icelandic equivalent for the second day. So it costs about €460k to insure €10m Greek debt, compared with €410k for Iceland (see chart). Read more

The Bundesbank has distanced itself from a report this morning that it opposed Europe’s fall-back plan for rescuing Greece. The Frankfurter Rundschau newspaper quoted a Bundesbank “internal paper” arguing that the plan would not stop German money flowing to Athens and threatened to undermine eurozone fiscal rules.

If that really were the Bundesbank’s view, it would be another blow for those hoping for united and effective eurozone support for Greece. But a Bundesbank spokesman said the paper was “not authorised” and was just the “first reaction” of an official. The paper had not been presented to the Bundesbank’s board, let alone been agreed. “A process of forming an opinion has not yet taken place,” it said. Read more

Today’s industrial production figures for February are strong, highlighting the receding chance of a double-dip recession being announced for the first quarter just before the 6 May election. Even less likely is the chance the Monetary Policy Committee will do anything at their monthly meeting today, thrusting themselves into the heart of the election debate.

The US government is paying more on its debt than at any time since mid-2009, and, prior to that, since the fall of Lehman Brothers. And demand for 10-year debt at the latest auction was at a high – almost double the levels seen during Lehman’s.

In yesterday’s 10-year treasury auction, $78bn debt was demanded, of which $21bn was accepted. The ratio of the two – the bid-to-cover ratio, an indicator of demand – was the highest since before Lehman’s. Read more

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Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS

Claire Jones is the FT's Eurozone economy correspondent, based in Frankfurt. Prior to this, she was an economics reporter in London. Before joining the Financial Times, she was the editor of the Central Banking journal. Claire studied philosophy and economics at the London School of Economics. RSS

Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS

Sarah O’Connor is the FT’s economics correspondent in London. Before that, she was a Lex writer, covered the US economy from Washington and the Icelandic banking collapse from Reykjavik. Sarah studied Social and Political Sciences at Cambridge University and joined the FT in 2007. RSS

Ferdinando Giugliano is the FT's global economy news editor, based in London. Ferdinando holds a doctorate in economics from Oxford University, where he was also a lecturer, and has worked as a consultant for the Bank of Italy, the Economist Intelligence Unit and Oxera. He joined the FT in 2011 as a leader writer. RSS

Emily Cadman is an economics reporter at the FT, based in London. Prior to this, she worked as a data journalist and was head of interactive news at the Financial Times. She joined the FT in 2010, after working as a web editor at a variety of news organisations.
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Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS

Ben McLannahan covers markets and economics for the FT from Tokyo, and before that he wrote Lex notes from London and Hong Kong. He studied English at Cambridge University and joined the FT in 2007, after stints at the Economist Group and Institutional Investor. RSS